Editors' pick: Originally published Jan. 19.
TheStreet's Jim Cramer is going shopping -- for beaten down stocks that could be bargains in this challenged market, that is.
But following last week's crushing market selloff, how -- and where -- do investors put money to work if they want to buy stocks? That's where Cramer comes in.
Cramer acknowledges in this morning's column My Shopping List for the Big Market Weakness, Part 1 on Real Money, that the stock sell offs have been "severe, myriad and sickening."
"Without the Fed saying 'we're done for a while,' or China coming back, as viewed by its stock market and the pitiful Baltic Freight Index (which is at an ultra-low 373) and oil bottoming by, say $25, I don't know how we can mount a rally and reverse the direction of so many stocks," Cramer wrote.
"But if you leave the table now, with the S&P oscillator about to take out its lows of 2011 when there was worldwide systemic risk instead of a cyclical downturn as we are having, you could regret it," he warns.
Over the weekend, the Mad Money host set up parameters for screening S&P 500 stocks, looking for companies "selling below a market multiple of 16x for the S&P 500 with an above-average 3.75% yield and a dividend that I think is not only sustainable but can grow," he wrote.
Immediately, that eliminated oil and oil-related stocks. And while there were plenty of stocks with yields north of 3%, there were few companies with yields over 3.75%, he noted.
"I think we would all agree that anything less than 3.75% in this environment isn't enough protection given that it's pretty easy to see an 8% decline in the indices morph into an 11% selloff, so that's where I have chosen to make a stand," Cramer wrote.
The list is across sectors. "On average, these stocks are cheap on both last year's earnings and this year's estimates and they can afford to pay you that protection. They will most likely bounce on any good news and preserve the downside given how scant the yield is on the 10-year," he wrote.
Cramer eliminated two high-yield stocks, Caterpillar and Seagate, over concerns about the companies as well as real estate investment trusts and utilities, with the exception of one stock.
Here are the beaten down high-yield stocks from the screen that Cramer likes, along with his commentary about each stock. Also, TheStreet notes if a stock is a part of Cramer's Action Alerts PLUS Charitable Trust Portfolio.AEP data by YCharts
1. American Electric Power
American Electric Power (AEP) is the only utility Cramer likes.
"I see no reason to list others as the group is very expensive," he wrote on Monday. "It's a safe haven that's being too sought after for my taste."
Cramer's Action Alerts PLUS owns American Electric Power in its portfolio, a position that was initiated last week for several reasons.
For one, the stock adds diversification to the portfolio. "As can be seen by the stock's relative outperformance against the market during the sustained selloff to begin the year, it is a stable, income-generating name, which is of ample importance during this uncertainty," Cramer wrote in his most recent Action Alert PLUS weekly roundup. "In addition, near-term catalysts should help it outpace its utility peers regardless of the broader market's movements. We like AEP's story as it becomes more regulated -- exiting the merchant generation area and growing the utility side, which will ultimately shine a light on its premium regulated business."
"We view shares as a safe bet in an uncertain time, and while they have rallied over the past month, they are nearly 10% off their January 2015 highs," he wrote. "The initiation goes side by side with our flight to quality, income and stability; the presence of tangible catalysts adds a nice topping to an already strong fundamental story. Our target is $65."
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